United States Court of Appeals,
Fifth Circuit.
No. 92-7756.
MATAGORDA COUNTY, Bay City Independent School District and City
of Bay City, Plaintiffs-Appellants,
v.
RUSSELL LAW and Federal Deposit Insurance Corporation, as
Receiver for Bay City Bank & Trust Co., Defendants-Appellees.
April 21, 1994.
Appeal from the United States District Court for the Southern
District of Texas.
Before POLITZ, Chief Judge, HIGGINBOTHAM, Circuit Judge and
PICKERING*, District Judge.
PICKERING, District Judge:
This case presents the issue of whether a lien interest held
by the FDIC can be extinguished without the FDIC's consent as a
result of foreclosure of liens securing the payment of local
property taxes. The FDIC contends, and the district court below
held, that 12 U.S.C. § 1825(b)(2), recently enacted as part of the
Financial Institutions Reform, Recovery, and Enforcement Act of
1989 (FIRREA), expressly requires protection of the FDIC's
interest.
In 1987, Bay City Bank & Trust Company acquired a lien on
several lots in Bay City, Texas, under a deed of trust executed by
Russell Law given to secure repayment of a $1,100,000 loan. In
August 1990 Bay City Bank was declared insolvent by the Texas State
*
District Judge of the Southern District of Mississippi,
sitting by designation.
1
Banking Commissioner and the FDIC was appointed receiver and
succeeded to Bay City's lien interest in the subject property. In
September 1991, Matagorda County, Bay City Independent School
District and the City of Bay City (the Taxing Units) sued Russell
Law and Bay City Bank in state court to recover delinquent ad
valorem property taxes, penalties, interest, attorney's fees and
other costs for the years 1988 through 1990 on the subject
property. The Taxing Units joined the FDIC as a defendant in the
state court action in January 1992, and the FDIC removed the case
to the district court in March 1992. The Taxing Units sought a
personal judgment against Russell Law for the taxes and penalties,
and foreclosure of the Taxing Units' lien without the permission of
the FDIC and without preserving the lien the FDIC had acquired from
Bay City.
The court below entered summary judgment against Russell Law
and in favor of the Taxing Units in the amount of $51,899.01 for
delinquent taxes, penalties and interest and decreed the existence
of a lien to secure that sum. The court in its well-reasoned
opinion further held that this lien "is prior and superior to all
claims, rights, title, interest, or liens asserted by all of the
parties Defendant herein", but then denied foreclosure of that lien
absent consent of the FDIC, requiring that any foreclosure be
subject to the FDIC's lien. It is from this ruling that the Taxing
Units have perfected their appeal.
STANDARD OF REVIEW
This Court reviews a grant of summary judgment de novo. Hanks
2
v. Transcontinental Gas Pipeline Corp., 953 F.2d 996, 997 (5th
Cir.1992). "In reviewing the summary judgment, we apply the same
standard of review as did the district court." Waltman v.
International Paper Co., 875 F.2d 468, 474 (5th Cir.1989). Summary
judgment is appropriate if the record discloses "that there is no
genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law." Federal Rules of Civil
Procedure 56(c). Sims v. Monumental General Ins. Co., 960 F.2d
478, 479 (5th Cir.1992). The pleadings, depositions, admissions,
and answers to interrogatories, together with affidavits, must
demonstrate that no genuine issue of material fact remains.
Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d
265 (1986). To that end we must "review the facts drawing all
inferences most favorable to the party opposing the motion." Reid
v. State Farm Mutual Auto Ins. Co., 784 F.2d 577, 578 (5th
Cir.1986). If the record taken as a whole cannot lead a rational
trier of fact to find for the non-moving party, there is no genuine
issue for trial. Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538
(1986).
We review the district court's legal decisions, including the
proper interpretation of a statute, de novo. AFCO Steel, Inc. v.
TOBI Engineering, Inc., 893 F.2d 92, 93 (5th Cir.1990).
TAX LIENS UNDER TEXAS LAW
Under Texas law, assessed but unpaid taxes on real property
become a lien on the property on January 1 of the year for which
3
they are levied. TEX.PROP.TAX CODE ANN. § 32.01 (Vernon 1992).
This lien has priority over any preexisting or subsequently imposed
lien. TEX.PROP.TAX CODE ANN. § 32.05 (Vernon 1992). The taxes
become delinquent if not paid prior to February 1 of the year
following the year in which they were imposed. TEX.PROP.TAX CODE
ANN. § 31.02 (Vernon 1992). At any time after its tax on property
becomes delinquent, a taxing unit may file suit to foreclose the
lien securing payment of the tax, to enforce personal liability for
the tax, or both. TEX.PROP.TAX CODE ANN. § 33.41(a) (Vernon 1992).
Property seized or ordered sold pursuant to foreclosure of a tax
lien is subject to sale to the highest bidder at a tax sale,
subject only to the owner's right of redemption and certain
covenants and easements running with the land which were recorded
prior to January 1 of the year the tax lien arose. TEX.PROP.TAX
CODE ANN. § 34.01 (Vernon 1992). The owner of real property sold
at a tax sale may redeem the property within two years after the
date on which the purchaser's deed is filed for record.1
TEX.PROP.TAX CODE ANN. § 34.21 (Vernon 1992).
A tax lien on real property in Texas secures four different
components:
(1) the tax itself;
(2) a one time penalty of twelve percent (12%) if the tax is not
paid by July 1 of the year in which it becomes delinquent,
1
The redemption period for certain classes of property not
homestead or designated for agricultural use was reduced to six
months by the 1993 session of the Texas Legislature by way of a
constitutional amendment to be acted upon by the citizens of
Texas. For purposes of this action, the outcome of the vote on
that amendment is of no consequence.
4
TEX.PROP.TAX CODE ANN. § 33.01(a) (Vernon 1982);
(3) interest at the rate of one percent (1%) per month until the
tax is paid "to compensate the taxing unit for revenue lost
because of the delinquency", TEX.PROP.TAX CODE ANN. § 33.01(c)
(Vernon Supp.1992); and
(4) an amount not to exceed fifteen percent (15%) of the total tax,
the twelve percent (12%) penalty, and the interest of one
percent per month, this being "an additional penalty to defray
costs of collection", and which precludes the recovery of an
attorney's fee in a suit brought to collect delinquent taxes.
TEX.PROP.TAX CODE ANN. § 33.07 (Vernon 1982).
PRIORITY OF TAXING UNITS' LIEN VERSUS THE FDIC'S LIEN
Appellants strenuously argue that their ad valorem tax lien is
superior to the consensual mortgage lien acquired by the FDIC.
Indeed, the court below held that appellants' lien, "... is prior
and superior to all claims, rights, title, interest, or liens
asserted by all of the parties Defendant herein." However, the
priority of the relative liens is not the determinative question to
be addressed. The decisive question is whether or not the court
below was correct in ruling that the appellants' ad valorem tax
lien could not be foreclosed without the permission of the FDIC,
regardless of the relative priority of the liens.
FIRREA
The Federal Deposit Insurance Corporation, when acting in its
capacity as a receiver, is exempted from the extinguishment of its
property interests through sale, foreclosure or levy, unless it has
given its consent. 12 U.S.C. § 1825(b)(2) provides;
No property of the Corporation shall be subject to levy,
attachment, garnishment, foreclosure or sale without the
consent of the corporation, nor shall any involuntary lien
attach to the property of the corporation.
Subsection (b) of § 1825 was adopted by Congress in the
5
Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA), Pub.L. No. 101-73, 103 Stat. 183, which became effective
on August 9, 1989. FIRREA was enacted in response to the national
crisis involving failed financial institutions. Its purpose was,
among other things, to strengthen enforcement powers of federal
regulators of depository institutions. FIRREA § 101, Reprinted in
1989 USCCAN (103 Stat.) 187.
The 1989 passage of 12 U.S.C. § 1825 extended the FDIC's
immunity from state taxation, previously limited to its corporate
function, to its role as receiver. Irving Independent School Dist.
v. Packard Properties, 970 F.2d 58, 61 (5th Cir.1992). As this
Court recognized in Irving. "The result of § 1825(b)(2) is that
liens may not attach to that property while the FDIC owns it, but
a property previously encumbered must remain so." Irving
Independent School Dist. v. Packard Properties, 970 F.2d at 61. We
went on to assert in Irving;
The FDIC enjoyed sovereign immunity from state tax
penalties to facilitate its reconsolidation of failed banks;
in addition to the constitutional requirements, an admirable
goal underlies that immunity. Whenever the FDIC can reduce
the charges connected to property it has acquired, it can
increase the value of the property, decrease its own losses,
expedite resale, and save the nation's taxpayers and insured
depositors a great deal of money. The ability to extinguish
liens securing unpaid tax penalties incurred by earlier owners
would certainly further these goals. But to endow the FDIC
with such a valuable tool would come at a great cost to state
and local taxing authorities. Using this case as an example,
local governments and school districts have operated with
reliance on the recovery of unpaid ad valorem taxes and
penalties through liens on real property. To deny them their
justified expectations of receiving those funds would threaten
their ability to operate their schools. The policy arguments
in this case are strong on both sides. Perhaps in
consideration of these countervailing interests, Congress
limited its grant of power to the FDIC.
6
Irving Independent School Dist. v. Packard Properties, 970 F.2d at
62-63.
LOCAL AND STATE TAXES IMPOSED ON PROPERTY OF THE UNITED STATES
It is well established that "a state may not, consistent with
the Supremacy Clause, U.S. Const., Art. VI, Cl. 2, lay a tax
"directly upon the United States.' " Irving Independent School
Dist. v. Packard Properties, 970 F.2d at 61; quoting, U.S. v. New
Mexico, 455 U.S. 720, 733, 102 S.Ct. 1373, 1382, 71 L.Ed.2d 580
(1982), and Mayo v. U.S., 319 U.S. 441, 447, 63 S.Ct. 1137, 1140,
87 L.Ed.2d 1504 (1943). "No state or county can tax the property
interest of the United States in the absence of Congressional
consent." U.S. v. Allegheny County, PA, 322 U.S. 174, 191, 64
S.Ct. 908, 917-18, 88 L.Ed. 1209 (1944). "There is no
constitutional prohibition against a state or county assessing
taxes against property on which the United States holds a lien on
the basis of the full value of that property, but, in the absence
of Congressional consent the state or county is without authority
to enforce the collection of the taxes thus assessed so as to
destroy the pre-existing federal lien." City of New Brunswick v.
United States, 276 U.S. 547, 556, 48 S.Ct. 371, 372-73, 72 L.Ed.
693 (1928); S.R.A., Inc. v. State of Minnesota, 327 U.S. 558, 569,
66 S.Ct. 749, 756, 90 L.Ed. 851 (1946).
THE FDIC's TAX POLICY STATEMENT
The FDIC contends that the central issue to be reviewed by
this Court is a purely legal one—interpretation of 12 U.S.C. §
1825(b)(2). The FDIC further asserts that the standard of review
7
is potentially affected by the fact that it has already interpreted
this statute in its Tax Policy Statement and accompanying Legal
Memorandum. FDIC's position is that should this Court agree with
the District Court that the statute is clear on its face, the
FDIC's interpretation will have no effect on the outcome of the
case. Appellee-FDIC stresses that should the Court conclude that
the statute is unclear however, the FDIC's interpretation should be
accorded deference under the well-established doctrine that an
agency's interpretation must be accepted if it reflects a plausible
construction of the statute and does not otherwise conflict with
Congress' expressed intent. Rust v. Sullivan, 500 U.S. 173, 111
S.Ct. 1759, 1767, 114 L.Ed.2d 233 (1991); Chevron, U.S.A., Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43, 104
S.Ct. 2778, 2781-2782, 81 L.Ed.2d 694 (1984); Sybrandy v. U.S.
Dept. of Agriculture, Agr. Stabilization and Conservation Service,
937 F.2d 443, 446 (9th Cir.1991); Resolution Trust Corp. v.
CedarMinn Bldg. Ltd. Partnership, 956 F.2d 1446, 1450-51 (8th
Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 94, 121 L.Ed.2d 56
(1992).
This Court has previously addressed the FDIC's Tax Policy
Statement and Accompanying Legal Memorandum in Irving Independent
School Dist. v. Packard Properties, supra. In Irving, this Court
declined to accord deference to the FDIC's Tax Policy Statement and
Legal Memorandum because it found that the statute at issue in that
case, § 1825(b)(3), clearly compelled an interpretation different
from the FDIC's. The Court went further and explained,
8
We conclude that the FDIC's Legal Memorandum should be given
no deference, not only because of the clarity of the federal
statute but because the Memorandum's strategically timed
publication—especially when the statutory language is
clear—imprints its contents with the stamp of biased
opportunism.
Irving Independent School Dist. v. Packard Properties, 970 F.2d at
64.
In response the FDIC stresses that this case is unlike the
facts addressed by the Court in Irving. The FDIC asserts that
several courts in addition to the District Court below have agreed
with the FDIC's interpretation of § 1825(b)(2). The FDIC points
out that in Irving, the Court declined to defer to the FDIC's
interpretation of § 1825(b)(3) on the ground that it was issued
"during pending litigation." The FDIC points out that the Tax
Policy Statement and underlying Legal Memorandum were issued three
months before the Taxing Units filed suit herein and six months
before the FDIC was made a party to this suit.
The FDIC's Tax Policy Statement was formally adopted by the
FDIC's board of directors and is published at 1 FDIC, Law,
Regulations and Related Acts (FDIC), 5331. The Legal Memorandum
which accompanied the Tax Policy Statement, and which was also
adopted by the FDIC board, is published at Fed.Banking L.Rep.
(CCH), Paragraph 81,426. The 1991 Tax Policy Statement replaced an
interim Tax Policy Statement that had been issued on July 12, 1990,
almost one year earlier. The 1991 Tax Policy Statement adopted
exactly the same interpretation of § 1825(b)(2) as set forth in the
interim policy statement. That interpretation was accepted by the
Court below. Thus appellee argues that its interpretation of §
9
1825(b)(2) is not merely a convenient litigating position as was
criticized by this Court in Irving, but instead reflects consistent
administrative practice entitled to judicial deference.
The entire argument of whether or not the Tax Policy Statement
issued by the FDIC is entitled to deference or not hinges on this
Court's finding of whether or not the statute at issue, §
1825(b)(2), is ambiguous. "A court may discount the FDIC's Legal
Memorandum when reliance upon an agency interpretation is
unnecessary because the statutory language the agency interprets is
unambiguous." Irving Independent School Dist. v. Packard
Properties, 970 F.2d at 63.
Section 1825(b)(2) says no "property" of the corporation shall
be subject to levy, attachment, garnishment, foreclosure, or sale
without the consent of the corporation.2 (Emphasis added.) "If
the intent of Congress is clear, that is the end of the matter;
for the Court, as well as the agency, must give effect to the
unambiguously expressed intent of Congress." Chevron, U.S.A., Inc.
v. Natural Resources Defense Council, Inc., 467 U.S. at 842-43, 104
S.Ct. at 2781-2782. "It is axiomatic that "[t]he starting point in
every case involving construction of a statute is the language
itself.' " Landreth Timber Co. v. Landreth, 471 U.S. 681, 685, 105
S.Ct. 2297, 2301, 85 L.Ed.2d 692 (1985); quoting Blue Chip Stamps
v. Manor Drug Stores, 421 U.S. 723, 756, 95 S.Ct. 1917, 1935, 44
L.Ed.2d 539 (1975). This Court has previously ruled that
Congressional intent, as codified in § 1825, is clear and
2
12 U.S.C. § 1825(b)(2).
10
unambiguous and that there was no need for an extraneous
interpretation of the FDIC's Tax Policy Statement nor its
accompanying Legal Memorandum. See Irving Independent School Dist.
v. Packard Properties, supra. The clear language of the statute
has become no less clear since Irving.
IS THE FDIC ACQUIRED LIEN A "PROPERTY INTEREST"?
The operation of § 1825(b)(2) is limited to "property" of the
corporation.3 Appellants Taxing Units contend that this Court
should rely on Texas State law for a determination of whether or
not the consensual mortgage lien acquired by the FDIC is a
"property" interest as contemplated in § 1825. As a first line of
support, the appellants cite several Texas cases which hold that
consensual mortgage liens are not "property" under Texas law.
Appellants assert that Texas law is controlling in determining what
the FDIC holds as the successor beneficiary of the consensual deed
of trust lien created on the Law lots. They further contend that
the FDIC does not possess an interest in the property nor is it a
property owner. Under Texas law, a lienholder does not have legal
title to the property on which he holds the lien. First Nat. Bank
of Bellaire v. Huffman Independent School Dist., 770 S.W.2d 571,
573 (Tex.App.—Houston [14th Dist.] 1989, writ denied), cert.
denied, 494 U.S. 1091, 110 S.Ct. 1838, 108 L.Ed.2d 967 (1990).
Appellants thus argue that if the FDIC does not have legal title,
3
"No property of the Corporation shall be subject to levy,
attachment, garnishment, foreclosure or sale without the consent
of the corporation, nor shall any involuntary lien attach to the
property of the corporation." 12 U.S.C. § 1825(b)(2).
11
then it has no property interest. See Birdville Independent School
Dist. v. Hurst Associates, 806 F.Supp. 122, 127 (N.D.Tex.1992).
However, Texas law does recognize that lienholders have an
equitable interest in the secured property. E.g., Flag-Redfern Oil
Co. v. Humble Exploration Co., Inc., 744 S.W.2d 6, 8 (Tex.1987).
Additionally, at least one Texas Court has found that an FDIC
acquired lien is "property" under § 1825. See State v. Bankerd,
838 S.W.2d 639, 641 (Tex.App.—San Antonio 1992, writ denied).
However, the definition of "property" in this case is governed
by federal law. Clearfield Trust Co. v. United States, 318 U.S.
363, 366-67, 63 S.Ct. 573, 574-75, 87 L.Ed. 838 (1943). It has
been settled federal law since 1928 that in the context addressed
herein, "property" embraces both fee and lien interests. See,
Clallam Co., Wash. v. U.S., 263 U.S. 341, 44 S.Ct. 121, 68 L.Ed.
328 (1923); City of New Brunswick v. United States, 276 U.S. 547,
48 S.Ct. 374, 71 L.Ed. 693 (1928); U.S. v. Roessling, 280 F.2d
933, 936 (5th Cir.1960); Rust v. Johnson, 597 F.2d 174 (9th Cir.),
cert. denied, 444 U.S. 964, 100 S.Ct. 450, 62 L.Ed.2d 376 (1979);
U.S. v. General Douglas MacArthur Senior Village, Inc., 470 F.2d
675, 680 (2nd Cir.1972), cert. denied, sub nom., County of Nassau
v. U.S., 412 U.S. 922, 93 S.Ct. 2732, 37 L.Ed.2d 149 (1973); U.S.
v. Richland County, 500 F.Supp. 312, 316-317 (D.S.C.1980); U.S. v.
Emergency Land Fund, Inc., 569 F.Supp. 62, 65 (S.D.Miss.1983),
aff'd., 738 F.2d 434 (5th Cir.1984). "No basis in law exists for
treating mortgage interests of federal instrumentalities
differently from other property of the United States." Rust v.
12
Johnson, 597 F.2d at 177; citing City of New Brunswick v. United
States, supra; and U.S. v. Roessling, 280 F.2d at 936.
Appellants next argue that 28 U.S.C. § 2410 controls the
outcome of this case. That statute addresses suits naming the
United States as a party in a civil action "... to foreclose a
mortgage or other lien upon ... property on which the United States
has or claims a mortgage or other lien." 28 U.S.C. § 2410(a). In
such a suit, "[a] judgment or decree ... shall have the same effect
respecting the discharge of the property or other lien held by the
United States as may be provided with respect to such matters by
the local law of the place where the court is situated." If § 2410
applies, the Taxing Units' prior lien would extinguish the junior
FDIC lien.
Section 2410, which substantially predates FIRREA, was enacted
in 1931 to "lift the bar of sovereign immunity which had
theretofore been considered to work a particular injustice to
private lienors." U.S. v. Brosnan, 363 U.S. 237, 246, 80 S.Ct.
1108, 1114, 4 L.Ed.2d 1192 (1960). FIRREA, on the other hand, is
a comprehensive system of statutes enacted fifty-eight years later
to address a crisis in the financial institutions industry.
Section 1825 was enacted to protect assets involuntarily acquired
by the FDIC from losing value because of its lack of knowledge
about local and state tax liens. Section 2410 is not mentioned in
FIRREA, and to the extent that it is inconsistent with that
statute, it does not control, since more specific and recent
statutes prevail over more general older ones absent a clear
13
intention otherwise. See, e.g., Morton v. Mancari, 417 U.S. 535,
550-51, 94 S.Ct. 2474, 2482-83, 41 L.Ed.2d 290 (1974); U.S. v.
Crittenden, 600 F.2d 478, 480 (5th Cir.1979); Sam Bassett Lumber
Co. v. City of Houston, 145 Tex. 492, 198 S.W.2d 879, 881 (1947).
Section 1825 is clearly a later, more specific statute designed and
enacted to protect assets acquired by the FDIC in its efforts to
strengthen the banking industry.
The Taxing Units cite two cases applying state law to divest
federal liens under § 2410. U.S. v. Brosnan, supra; and U.S. v.
Cless, 254 F.2d 590 (3rd Cir.1958). However, both of those cases
recognized that divestiture was proper only if Congress had not
acted to prevent it. Brosnan, 363 U.S. at 241, 242, 80 S.Ct. at
1111, 1112; Cless, 254 F.2d at 594. Congressional action pursuant
to the enactment of § 1825 of FIRREA defeats the operation of §
2410 in this case.
The appellants next argue that federal common law, as
developed from state law, controls. For this proposition,
Appellants rely on U.S. v. Kimbell Foods, Inc., 440 U.S. 715, 99
S.Ct. 1448, 59 L.Ed.2d 711 (1979). Kimbell Foods held, "We
conclude that the source of law is federal, but that a national
rule is unnecessary to protect the federal interest underlying the
loan programs. Accordingly we adopt state law as the appropriate
federal rule for establishing the relative priority of these
competing federal and private liens." U.S. v. Kimbell Foods, Inc.,
440 U.S. at 718, 99 S.Ct. at 1453. The holding of Kimbell Foods
would seem to support the appellants' position. However, that case
14
contains this caveat: "Thus, the prudent course is to adopt the
readymade body of state law as the federal rule of decision until
Congress strikes a different accommodation." U.S. v. Kimbell
Foods, Inc., 440 U.S. at 740, 99 S.Ct. at 1464. Appellants ignore
the holding in Kimbell Foods, "... that absent a Congressional
directive, the relative priority of private liens and consensual
liens arising from these government lending programs is to be
determined under non-discriminatory state laws." 440 U.S. at 740,
99 S.Ct. at 1465. (Emphasis added.) In the situation presented to
the Court in the case at bar, there has been direct Congressional
action by virtue of 12 U.S.C. § 1825(b)(2)—not concerning the
priority of the relative liens—but dealing with a taxing unit's
ability to enforce that lien absent FDIC consent. As the Ninth
Circuit stated in Rust, "Appellants' contention confuses validity
and priority of the lien with the real issue in this lawsuit. We
are not concerned with authority of the city to make the assessment
or with the priority under state law of the street improvement
lien.... What we have decided is that under federal law the
improvement lien cannot be enforced without protecting the federal
interest." Rust v. Johnson, 597 F.2d at 180.
As pointed out previously, appellants seem to be operating
under the same misapprehension as was the City of Los Angeles in
Rust. The FDIC has not contested the Taxing Units' authority to
assess the taxes against the Law property nor the validity or
priority of their subsequently imposed lien for the failure to pay
taxes. The FDIC's only contention is that the tax lien cannot be
15
foreclosed so as to extinguish its (the FDIC's) interest in the
property unless it (the FDIC) consents. The FDIC's acquired lien
interest in the Law lots is clearly a "property" interest as
contemplated in the statute.4
Appellants' other arguments regarding the Legislative history
and the asserted retroactive application of the statute are without
merit. The fact that this suit relied on events occurring before
the 1989 enactment of FIRREA does not make its application
retroactive. See U.S.E.P.A. v. New Orleans Public Service, Inc.,
826 F.2d 361, 365 (5th Cir.1987). The Taxing Units' suit to
foreclose their tax lien is the triggering event that is prohibited
by FIRREA—specifically by § 1825(b)(2). For purposes of the
prohibition contained in the statute, it does not matter when the
lien came into existence, the attempted enforcement occurred in
1991. See GWN Petroleum Corp. v. OK-Tex Oil & Gas, Inc., 998 F.2d
853 (10th Cir.1993).
If the taxing units were allowed to foreclose their tax lien
without the consent of the FDIC, the consensual mortgage lien
executed by Law and acquired by the FDIC as a result of the failure
of Bay City Savings Bank would be extinguished. This is clearly
forbidden by the plain wording of § 1825(b)(2). Again, this appeal
does not involve the priority of the liens involved, it only
involves the question of when and how the foreclosure can be
conducted.
THE "TAKINGS CLAUSE"
4
12 U.S.C. § 1825(b)(2).
16
The final point of error asserted by the Taxing Units is that
the district court erred in holding that 12 U.S.C. § 1825 prohibits
a foreclosure of the ad valorem tax lien without awarding the
Taxing Units recovery against the FDIC for the amount of the value
secured by the tax lien.5 In other words, the FDIC has effectively
"taken" the property of the Taxing Units (the value secured by the
tax lien) without just compensation as required by the United
States Constitution.6
The FDIC contends that the application of § 1825 to protect
its lien interest from foreclosure is not a compensable taking
under the Fifth Amendment because all the statute requires is that
the FDIC lien be protected. It does not extinguish the Taxing
Units' lien nor does it even subordinate it to the FDIC lien—it
5
The FDIC argues that there can be no "taking" by virtue of
the Constitution's Supremacy Clause, because, absent express
Congressional waiver, a local taxing authority could never
enforce a tax lien so as to destroy a federal lien interest.
E.g., Clallam County, 263 U.S. at 344, 44 S.Ct. at 121-22; New
Brunswick, 276 U.S. at 556, 48 S.Ct. at 372-73; U.S. v.
Roessling, 280 F.2d at 936; Rust v. Johnson, 597 F.2d at 178-79.
Since 12 U.S.C. § 1825(b)(1) provides that State and local
governments may impose real property taxes on property acquired
by the FDIC, there has been an "express Congressional waiver" of
the Supremacy Clause. Thus, the FDIC's Supremacy Clause argument
is not entirely relevant, except for historical purposes.
6
The relevant portion of the Fifth Amendment to the United
States Constitution provides that, "... nor shall private
property be taken for public use, without just compensation."
Although the language of the "Takings Clause" is couched in terms
of "private property", it is recognized that the "Takings Clause"
also applies to "independently held and controlled property of a
state or of a local subdivision...." U.S. v. Carmack, 329 U.S.
230, 242, 67 S.Ct. 252, 257, 91 L.Ed.2d 209, 217 (1946); See
also, U.S. v. 50 Acres of Land, 469 U.S. 24, 105 S.Ct. 451, 83
L.Ed.2d 376 (1984).
17
merely delays its enforcement.7 Appellants counter that it is this
indeterminate delay that constitutes a compensable taking.
While eschewing any " "set formula' for determining when
"justice and fairness' require that economic injuries caused by
public action be compensated by the government,"8 the Supreme Court
has identified three factors that have "particular significance."9
They are; (1) the economic impact of the regulation on the
claimant; (2) the extent to which the regulation has interfered
with distinct investment-backed expectations; and, (3) the
character of the governmental action.10
The first significant factor is the economic impact of § 1825
on the Appellants. In order for regulatory action to rise to the
level of an unconstitutional taking, there must be a complete
deprivation of the owner's economically viable use of his property.
See Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104, 138,
n. 36, 98 S.Ct. 2646, 2666, n. 36, 57 L.Ed.2d 631, 657 (1978);
Agins v. City of Tiburon, 447 U.S. 255, 260, 100 S.Ct. 2138, 2141,
65 L.Ed.2d 106, 112; and Lucas v. South Carolina Coastal Council,
7
The FDIC points out that under its interpretation of §
1825(b)(2), the Taxing Units can foreclose their lien, as long as
the FDIC lien is protected; that the FDIC has stated that it
will provide for payment of delinquent taxes on property in which
it holds an interest; and that tax liens having priority over
the FDIC's mortgage liens under state law will be recognized.
8
Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104,
124, 98 S.Ct. 2646, 2659, 57 L.Ed.2d 631, 648 (1978).
9
Id.
10
Id. See also, Connolly v. Pension Ben. Guar. Corp., 475
U.S. 211, 225, 106 S.Ct. 1018, 1026, 89 L.Ed.2d 166, 179 (1986).
18
--- U.S. ----, ----, 112 S.Ct. 2886, 2893, 120 L.Ed.2d 798, 813
(1992). Where virtually all of the owner's possessory rights are
left intact, the interference cannot be a taking. Penn Cent., 438
U.S. at 130-31, 98 S.Ct. at 2662-63. As the Supreme Court has
stated, "where an owner possesses a full "bundle' of property
rights, the destruction of one "strand' of the bundle is not a
taking, because the aggregate must be viewed in its entirety."
Andrus v. Allard, 444 U.S. 51, 65-66, 100 S.Ct. 318, 327, 62
L.Ed.2d 210 (1979). Both parties analogize to the "bundle" of
rights. The FDIC contends that the Taxing Units' property interest
is to the taxes due on the property which secures the tax lien and
the mortgage lien. That property interest includes a bundle of
rights including the power to assess and levy taxes, assess
penalties, to foreclose on tax liens, and to obtain personal
judgments against landowners. All of this bundle remains after the
application of FIRREA except the right to foreclose. As long as
some strands remain in the bundle, the fact that the Taxing Units
suffer economic loss does not create a taking. See Penn Cent.
Transp. Co. v. City of New York, supra. The Taxing Units assert
that the tax lien itself is the affected property right. They
argue that the FDIC's power to delay foreclosure makes the entire
lien worthless for the period of delay and further, may make the
entire lien completely worthless when it does finally give its
consent if the accumulation of debt (interest) on the property
makes it unmarketable. Thus, the ultimate question confronting the
Court is whether or not a delay in allowing the Taxing Units to
19
foreclose their lien constitutes a taking. The Taxing Units have
cited no cases which hold that mere delay in exercising a property
right is a compensable taking. The main case relied upon by the
Appellants is Louisville Joint Stock Land Bank v. Radford, 295 U.S.
555, 55 S.Ct. 854, 79 L.Ed. 1593 (1935). However, Louisville dealt
not only with delay but also with a bankruptcy provision which
allowed the underlying debt to be written down. Under § 1825, the
FDIC does not have the power to change the amount of taxes due—nor
does it prevent the Taxing Units pursuing collection of their
personal judgment against the landowner, Russell Law. While the
operation of § 1825 creates a delay which impairs the ability of
the Taxing Units to collect on their tax lien, mere delay—at least
the period of delay experienced to this point—does not infringe on
Appellants' total "bundle" of rights to the point of creating a
compensable taking.
The Taxing Units concede that they may not have the same type
of investment-backed expectations present in a traditional analysis
of the next prong of the tri-partite test, but they argue that they
certainly expected to be able to collect the delinquent taxes owed
to them or to be able to foreclose on the underlying security and
sell it in order to recover the unpaid taxes, penalties and
interest. The Taxing Units have relied on the fact that their lien
generally takes priority over all other liens, and indeed it still
has priority over the FDIC acquired lien. However, the Taxing
Units routinely deal with banks holding security instruments on
real property and must recognize that, "Banking is one of the
20
longest regulated and most closely supervised of public callings."
Fahey v. Mallonee, 332 U.S. 245, 250, 67 S.Ct. 1552, 1554, 91 L.Ed.
2030 (1947). Those who deal with regulated industries are charged
with notice that Congress may enact legislation to meet a given
legislative goal. See Connolly, supra; and McAndrews v. Fleet
Bank of Massachusetts, N.A., 989 F.2d 13 (1st Cir.1993).
Regardless of the foregoing, prior to the 1989 enactment of FIRREA,
Appellants would have likely been entitled to enforcement of their
tax lien irrespective of who held the mortgage lien. This factor
tends to militate in favor of finding a taking but for the fact
that in the final analysis, FIRREA has not ultimately deprived the
Appellants of the essence of their claim—it has merely delayed
enforcement of that claim.
With respect to the final significant factor, the character of
the governmental action, the FDIC has not physically invaded or
permanently appropriated any assets belonging to the Taxing Units
for its own use. "It is well settled that a " "taking" may more
readily be found when the interference with property can be
characterized as a physical invasion by government, ... than when
interference arises from some public program adjusting the benefits
and burdens of economic life to promote the common good.' ...
While the Court has almost invariably found that the permanent
physical occupation of property constitutes a taking, ... the Court
has repeatedly upheld regulations that ... adversely affect real
property interest." Keystone Bituminous Coal Ass'n v.
DeBenedictis, 480 U.S. 470, 488, n. 18, 107 S.Ct. 1232, 1243, n.
21
18, 94 L.Ed.2d 472 (1987). The indeterminate postponement of the
Taxing Units' ability to collect on their tax lien, while not a
"physical invasion" or a "permanent appropriation" of their assets,
is certainly a severe impairment of those assets. The Taxing Units
make a persuasive argument that their ongoing viability—the ability
to provide necessary community services, schools, fire and police
protection, etc.—are greatly compromised by their inability to
collect delinquent taxes. This argument does not fall on deaf
ears.
After a careful analysis of all of the facts of this case,
this Court is not convinced that the Appellants have been deprived
of a sufficient property interest to create a compensable taking.11
11
The Court would note that the court below authorized the
Taxing Units to foreclose on the property in question provided
the lien of the FDIC is preserved. That is not a realistic
solution. As the record indicates, when the final judgment was
entered in the trial court below on November 10, 1992, the
adjudged value of the lots was only $333,660. The last unpaid
balance of the Russell Law note appearing in the record was for
an original principal sum of $891,000 in March 1989. The FDIC
lien further involves interest that has accrued since that date.
As a practical matter the Taxing Units cannot sell this
property which has a value of only some $333,000 with a
potential FDIC lien of almost one million dollars. The
practical effect of 12 U.S.C. § 1825(b)(2) is that at some
point either one or both of the parties will find a
purchaser who will discharge the tax lien and pay a sum to
the FDIC which will represent a part of the FDIC's total
lien, based upon the market value of the property in
question and finding a willing buyer; the FDIC will
foreclose on the subject property and either some other
entity will buy it in and then have the responsibility of
discharging the tax lien to the Taxing Units, or the FDIC
will take it into inventory at which time the FDIC will have
to discharge the tax lien as per its policy; or, the FDIC
will eventually have to abandon its interest in the property
in accordance with its policy. That is the practical effect
of 12 U.S.C. § 1825(b)(2).
22
Congress was presented with the phenomenal task of addressing an
impending catastrophe in the failure of financial institutions and
in response enacted FIRREA. Certain provisions therein are the
classic example of a "public program that adjusts the benefits and
burdens of economic life to promote the common good." Penn Cent.,
supra 438 U.S. at 124, 98 S.Ct. at 2659, 57 L.Ed.2d at 648. As the
Court has stated, "Legislation designed to promote the general
welfare commonly burdens some more than others." Id. at 133, 98
S.Ct. at 2664, 57 L.Ed.2d at 654. This Court has found that delay
in the exercise of a valuable property right alone is not
sufficient to create a compensable taking. That finding is
tempered, indeed limited, by the acknowledgement that delay to this
point is not sufficient to constitute a compensable taking.
The Court would further note that the consensual lien
on the subject property became the property of FDIC when it
was appointed receiver in August 1990. The judgment below
was entered on November 10, 1992, some two years and three
months after this lien became an asset of the FDIC. FIRREA
was adopted to allow the FDIC to take over failed financial
institutions so that the ultimate loss to the taxpayers
would be reduced. An inordinate delay on the part of the
FDIC could not only result in defeating the reason for
adopting FIRREA, but it could, if continued long enough,
result in an unconstitutional taking. The Supreme Court
discussed the limits that a governmental body can go to in
diminishing property rights of another without their being
an unconstitutional taking and said, "One fact for
consideration in determining such limits is the extent of
the diminution. When it reaches a certain magnitude, in
most if not in all cases there must be ... compensation...."
Keystone Bituminous Coal Ass'n v. DeBenedictis, 480 U.S. at
474, 107 S.Ct. at 1236, 94 L.Ed.2d at 481. Although two
years and three months, under the facts of this case
involving a piece of property worth in excess of $330,000,
does not constitute a taking, it is approaching what this
Court considers to be the maximum amount of time that should
be allowed to resolve matters such as this without there
being a "taking" requiring compensation.
23
Unmitigated delay, coupled with diminishment of distinct
investment-backed expectations, may, at some point, infringe on the
entire "bundle" of rights enjoyed by the Appellants to the point
that a compensable taking occurs. With the forgoing admonition and
as the record now stands, the Court rejects the Taxing Units'
"Takings Clause" argument.
For the foregoing reasons, the judgment of the district court
is AFFIRMED.
24